Short interest in the iShares MSCI Emerging Markets ETF (EEM US) has been very volatile this year. Shorts covered a third of their open positions, $1.1 billion, in the 1st quarter going from $3.4 billion in short interest to $2.3 billion as EEM’s stock price rose 6.4%.
After a relatively quiet April, short sellers went into overdrive and shorted $2.35 billion of the ETF, almost doubling their emerging markets exposure in May. Total short interest topped out at $4.9 billion by the end of the month. The S3 Crowding Indicator, a measure of the magnitude of real-time shorting activity relative to market cap and float, had significant spikes on April 22nd, when short selling started to pick up, and on May 2nd when shorts began entering the market in size. Throughout May there were clusters of crowding indicators as EEM’s short interest rose steadily.
The EEM roller coaster continued with shorts covering in June, closing out 40% of all shorts, bringing total short interest down almost $2 billion to $3.0 billion The S3 Crowding Indicator showed short easing throughout June and the early part of July. By the end of July short interest was up $700 million, or 24%, and the selling continued into August with another increase of 14%.
Borrow rates for EEM are still low, trading at a 25 bp fee, but if demand continues at this pace we should see rates nearing 1% fee in 1-2 weeks. EEM Short interest is now $4.2 billion and we are seeing the S3 Velocity Indicator, a measure of real-time relative change in short interest, beginning to trend up. The 7 day trend line is now moving upwards but the 30 and 90 day trend lines are still moving downwards. If they begin to move upwards, we should see EEM short interest top this year’s high of $4.95 billion bu it would take a significant amount of new demand to challenge historical highs of $7.9 billion set in March of 2013.
For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC Ihor.Dusaniwsky@S3Partners.net
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